By JEFF GERTH,

Published: March 8, 1992

WASHINGTON, March 7—
Bill Clinton and his wife were business partners with the owner of a failing savings and loan association that was subject to state regulation early in his tenure as Governor of Arkansas, records show.

The partnership, a real estate joint venture that was developing land in the Ozarks, involved the Clintons and James B. McDougal, a former Clinton aide turned developer. It started in 1978, and at times money from Mr. McDougal's savings and loan was used to subsidize it. The corporation continues to this day, but does not appear to be active.

Mr. McDougal gave a detailed account of his relationship in several interviews in the last two weeks. This account, along with an examination of related local, state and Federal records and interviews with dozens of others in Arkansas, found the following:

*Available records covering the most active period of the real estate corporation, called Whitewater Development, appear to show that Mr. McDougal heavily subsidized it, insuring that the Clintons were under little financial risk in what turned out to be an unsuccessful enterprise. The corporation bought 200 acres of Ozark Mountain vacation property and planned to sell it in lots. During this period, the Clintons appear to have invested little money, so stood to lose little if the venture failed, but might have cashed in on their 50 percent interest if it had done well.

*The Clintons and Mr. McDougal disagree about what happened to Whitewater's records. Mr. McDougal says that at Mr. Clinton's request they were delivered to the Governor's mansion. The Clintons say many of them have disappeared. Many questions about the enterprise cannot be fully answered without the records.

*After Federal regulators found that Mr. McDougal's savings institution, Madison Guaranty, was insolvent, meaning it faced possible closure by the state, Mr. Clinton appointed a new state securities commissioner, who had been a lawyer in a firm that represented the savings and loan. Mr. Clinton and the commissioner deny giving any preferential treatment. The new commissioner approved two novel proposals to help the savings and loan that were offered by Hillary Clinton, Governor Clinton's wife and a lawyer. She and her firm had been retained to represent the association.

*The Clintons improperly deducted at least $5,000 on their personal tax returns in 1984 and 1985 for interest paid on a portion of at least $30,000 in bank loan payments that Whitewater made for them. The deductions saved them about $1,000 in taxes, but since the error was more than three years ago, Internal Revenue Service regulations do not require the Clintons to pay.

The complicated relationship between Mr. McDougal and the Clintons came to light in an investigation by The New York Times of the Clintons' tax records and business relationships. It raises questions of whether a governor should be involved in a business deal with the owner of a business regulated by the state and whether, having done so, the governor's wife through her law firm should be receiving legal fees for work done for the business. Confusion Is Cited

Asked about these matters, the Clintons retained two lawyers to answer questions. The lawyers said the improper tax deductions were honest errors, made because there was confusion over who really owned a certain piece of Whitewater property and who was responsible for the loan taken out to buy it, Whitewater or the Clintons.

The deed for the land and the loan papers are all in the Clintons' names.

The lawyers said they were not in a position to answer questions about where the money that went into Whitewater came from. But generally, they said they thought neither the Clintons nor Mr. McDougal had profited from the venture. They also said the Clintons were once liable for about $100,000 in bank loans that financed Whitewater's original purchase of land. But the lawyers have only been able to find original documents showing $5,000 that the Clintons paid.

Some questions about the relationship and the Clintons' role in it may be difficult to resolve because of differing accounts and the missing records.

The two lawyers representing the Clintons are Susan P. Thomases, a longtime friend, and Loretta Lynch, a campaign aide, who participated in several hours of interviews at Ms. Thomases' Manhattan offices Thursday and Friday. Payments on Debt

The records that are available, and Mrs. Thomases' account, show that Whitewater made payments between 1982 and 1985 on Mrs. Clinton's $30,000 real estate debt, reducing the debt by about $16,000 while also paying at least $14,000 in interest. At least one of those checks was signed by Mr. McDougal.

Mrs. Clinton originally borrowed the $30,000 from a bank also controlled by Mr. McDougal, Bank of Kingston, but "Hillary took the loan on behalf of the corporation," Ms. Thomases said. That, she explained, is why Whitewater made the payments.

The Clintons' 1984 and 1985 tax returns show that they took deductions for interest payments of $2,811 and $2,322 that Whitewater had made.

"It clearly is an error," Ms. Thomases said. She noted that the tax returns for those years were prepared by accountants in Arkansas.